Martin Mansergh (Tipperary South, Fianna Fail)

Last January the Minister for Finance set out in the Dáil a framework of investigation into the problems that arose in the Irish banking sector. He stated a comprehensive understanding of the events that took place in the banking sector in recent times was an essential component of recovery. He noted that, as a Government and Members of the Oireachtaqs, we had a duty to ensure not only that the origins of the crisis were understood, but that lessons were learned and that international and domestic confidence in the banking system was restored in order that the economy could return to growth and employment creation.

As the first stage of the process of investigation, the two preliminary reports prepared by Klaus Regling and Max Watson and the Governor of the Central Bank, respectively, provide a comprehensive and authoritative examination of the crisis in the banking sector in Ireland. The authors have given us a detailed and insightful analysis of the global, European and domestic macro-economic factors at play in the relevant period. Governor Honohan's report details the failures in our regulatory and supervisory arrangements and the weaknesses in the evaluation of the stability of the banks.

The reports draw attention to a number of issues which require further analysis and provide a sound basis for the further investigation of these significant issues. The Government welcomes their direction in this respect. They were laid before the Houses of the Oireachtas on 9 June and debated. The Joint Committee on Finance and the Public Service has had two separate and lengthy engagements with the authors and subsequently with the Minister to discuss how we should proceed. The meetings allowed a comprehensive airing of the issues raised in the reports and a necessary rebalancing of the initial interpretation and media commentary by highlighting the complex interplay of factors at work that culminated in the extreme turbulence that impacted on the banking system in September 2008.

In their report Klaus Regling and Max Watson distinguish between those issues that are amenable to further investigation through a legally orientated process and other issues which are less concrete and verifiable and may be more appropriately the subject of policy review. This distinction formed the basis of the Government's proposed approach to the next steps in the process.

I draw the attention of the Seanad to a number of points about the findings of the preliminary reports. Both reports, in particular that of Mr. Regling and Mr. Watson, describe in some detail the nature of the explosion in the availability of credit in the Irish banking sector and characterise the failures in governance and risk management in the banks as "disastrous" and ultimately leading to systemic difficulties in the financial system. What went on in the banks leading up to the crisis remains a cause of significant public concern. The public interest demands that we investigate the very serious failures in the standards and controls that should have ensured prudent risk management policy and procedures.

It is clear that there were particularly egregious failures in corporate governance and risk management at Anglo Irish Bank and Irish Nationwide Building Society. Certain matters are already the subject of investigation by the relevant authorities and I do not propose to comment on these. However, there is a clear need to examine more deeply and broadly what went wrong in these two organisations, while taking account of the other investigations. That is why the draft terms of reference prepared by the Government specifically set out the need for a full examination of the business models and strategies adopted by the boards of these institutions and the implementation by their senior managements of business and lending practices which resulted in these institutions experiencing such uniquely severe financial distress. The investigation will cover the period from 1 January 2003 to 15 January 2009, the date on which Anglo Irish Bank was nationalised.

Building on the need to investigate failures in governance and risk management, it is proposed that the commission also investigate whether the external auditorscommented in their audit reports on the standards and controls and risk management policy and procedures, or on the business models and strategies and business and lending practices that led to the severe difficulties experienced by the banking system.

On foot of the analysis by Governor Honohan of the failures of financial supervision, there is a need for further examination of the nature of supervision and oversight of the banks by the Financial Regulator. For this reason, it is proposed that the commission examine the failures of the Central Bank and the Financial Regulator to regulate and supervise the covered institutions and maintain financial stability.

The terms of reference in the draft order laid before the Houses address each of these points in the light of the findings of the preliminary reports. Under the Commissions of Investigation Act 2004, a commission of investigation may be established by the Government, with the approval of the Oireachtas, to investigate any matter considered to be of "significant public concern". There can be no doubt that the banking crisis and its origins fall squarely within that category. It has had a profound impact on the State and its financial position and we will live with its consequences for some time to come. It is essential that we identify what went wrong and why and that we learn the lessons of the past to ensure we never make the same mistakes again.

The Minister announced this morning that Mr. Peter Nyberg, the former director general for financial services at the Finnish Ministry of Finance, has agreed to lead the commission. Mr. Nyberg has all the necessary experience to undertake this important role. He will be supported by the expertise he requires and provision has been made in the Estimate for the Department of Finance for this year to cover the costs of the commission.

There are ongoing investigations by the relevant regulatory and other authorities into specific matters of a serious nature in a number of institutions. The commission of investigation will not supplant or hinder these investigations. In fact, it is open to the relevant authorities to initiate further investigations into additional possible breaches arising from any findings the commission may make.

The motion before the Seanad seeks approval of the draft Government order laid before the Houses yesterday providing for the establishment of a commission of investigation into the banking sector.

I draw the attention of the Seanad to the Government's decision, following the recommendation of the Joint Committee on Finance and the Public Service, to extend the period to be covered by the commission of investigation from 1 January 2003 to 15 January 2009. This means the commission will now be in a position to examine all relevant matters relating to corporate governance and risk management in each of the banks covered by the Government's guarantee up to the date of the Government's decision to nationalise Anglo Irish Bank.

The second motion before this House seeks to refer certain macro-economic policy lessons to the Joint Committee on Finance and the Public Service arising from recommendations set out in the Regling and Watson report. As is clear from that report, these policy issues can be divided into two groups - those that relate to macro-economic management and those that relate to financial stability and prudential-supervisory matters. The former are primarily the responsibility of the Minister for Finance in the first instance and the latter fall within the remit of the Central Bank and Financial Regulator.

The Government is, therefore, proposing that the joint committee, taking account of the emerging EU proposals on fiscal and economic governance, examines the following matters highlighted in the Regling and Watson report: the role of macro-economic management and surveillance in securing the long-term sustainability of Ireland's economic performance and also in responding on a timely basis to risks and imbalances that may build up in both the private and the public sectors of the economy, including external imbalances vis-À-vis other euro area members and the funding of any imbalances that might arise; the role of fiscal policy in securing an appropriate alignment of the national business cycle with monetary conditions in the economy; the requirement for the design and conduct of budgetary and taxation policies to take account of the cyclical nature of particular revenues as well as their temporary nature in certain circumstances in order to maintain an appropriate and effective tax base; and the case for the establishment of new institutional structures to provide an independent validation of economic and fiscal projections as well as for the introduction of domestic medium term fiscal rules.

Following discussions between the committee and the Minister, it is understood the committee is agreeable to the main elements of the overall proposed scope. It is proposed that its deliberations be concluded by the end of October in order to publish and report back to this House and to the Dáil by 4 November 2010.

In regard to the issues within the remit of the regulatory system, the House will be aware that the Central Bank published a report on 21 June setting out its proposed approach to future regulation of the banking sector. This report also addresses how the range of measures it is putting in place will address the issues raised in the Governor's report and that of Messrs Regling and Watson. This is another step in the road to the recovery of our banking system.

It is the Government's view, underpinned by the two preliminary reports, that certain decisions and processes, which are fundamentally political in nature, are not amenable to an investigation, the purpose of which is to make findings of fact. The Government will not be changing its position on that point and there are no good reasons for it to do so.

It must also be made clear that the Department of Finance will feature in significant ways in both of these investigations. First, the terms of reference of the commission require it to examine whether any advices or directions given by the Department of Finance to the Financial Regulator were, in any way, relevant to failure of the Financial Regulator in the performance of its supervisory functions. Second, in regard to the proposed policy review by the committee, the Minister has already indicated his availability to meet the committee as the accountable Minister to assist it in its deliberations as necessary. The Minister and the Government have at all times remained accountable to the Oireachtas for decisions taken. That will continue to be the case.

In addition, as the Minister has already indicated, he is establishing an independent review by an international expert or experts with relevant international and-or domestic experience to evaluate the systems, structures and processes used by the Department of Finance in providing advice to the Minister and the Government. The review will examine the Department's role and performance in the past ten years in providing advice to the Minister and the Government.

The matters we are discussing are important and will have enduring consequences for future economic and financial policy. It is appropriate, given the scope and cost of measures that have been necessary to stabilise the Irish banking sector, that it be fully and completely investigated and the lessons learned in order to put in place the best systems and structures in the future so this kind of crisis can never happen again. I commend the motion to the Seanad.

I apologise to Senators for galloping through my speech but time is limited and it was for the purpose of allowing them to have their say.